Robert Barro on Paul Krugman

Harvard Economist Robert Barro wrote a piece recently in the Wall Street Journal that was highly critical of Wonderboy's economists' estimation of the "keynesian multiplier" for the stimulus bill of greater than 1.

Barro is a heavyweight economist with significant experience in macroeconomics, growth and deficits. The following is from a recent Wall Street Journal piece, "Notable & Quotable," focusing on Barro's comments concerning his nemesis and uber-liberal Democratic economist, Paul Krugman.

"Atlantic: And I take it from the Wall Street Journal piece you wrote last week . . . well, the piece is just specifically about measuring multipliers, but I take it that you are fairly skeptical in general that fiscal policy will boost aggregate demand.

Barro: Right. There's a big difference between tax rate changes and things that look just like throwing money at people. Tax rate changes have actual incentive effects. And we have some experience with those actually working.

Atlantic: What would you say is the best empirical evidence there?

Barro: Well, you know, it worked to expand GDP for example in '63 and '64 with the Kennedy/Johnson cuts. And then Reagan twice in '81 and '83 and then in '86. And then the Bush 2003 tax-cutting program. Those all worked in the sense of promoting economic growth in a short time frame.

I'm the middle of a study where I am trying to estimate this overall, going back to 1913 -- sort of constructing some measure of the overall effect of the tax rate at the margin, at the moment. I'm just looking at that now, actually . . .

Atlantic: You're talking about the multiplier on a dollar of . . .

Barro: Well both things, but here I'm talking about the tax rate stuff. Get some measure of the effect of marginal tax rate that comes from the government -- federal, state, local. And then you can see what it looks like going down or going up and how the economy responds. And then, in addition to that, the government might be spending more or less money on either military stuff or not on military stuff. And we can estimate that at the same time. With the government spending stuff, the clearest evidence is in wartime. It's not that it's the most pertinent, but it's the clearest in terms of evidence because it's the dominating evidence at those times, especially during the world wars.

Atlantic: Do you read Paul Krugman's blog?

Barro: Just when he writes nasty individual comments that people forward.

Atlantic: Oh, well he wrote a series of posts saying he thought the World War II spending evidence was not good, for a variety of reasons, but I guess . . .

Barro: He said elsewhere that it was good and that it was what got us out of the depression. He just says whatever is convenient for his political argument. He doesn't behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he's writing about."

Priceless. Barro executes a very succinct, relevant put down of Krugman's attempt at infallibility, just because he was awarded a Nobel for his trade-related economic work. It's important to understand this, because Krugman has a vicious hatred of George Bush, and is often cited by liberals wishing for a rubber stamp on whatever recent economic fallacy they are currently pushing.